According to my sources at DWP, the consultation on how trustees of DC occupational pensions (including master trusts) listen to members views on “matters green” got record numbers of respondents – over 3,500. Apart from the consultation on pension following the British Steel Port Talbot fiasco, the consultation was massively popular.
Most of these consultation responses were from people who cared about the environment and saw how their pension pots were invested as their personal responsibility.
This tallies with research published by Ignition House and commissioned by the DC investment forum that found that ordinary people (e.g. the people who our pension plans are for), expected their investments to be invested responsibly – even if that meant sacrificing racy returns from irresponsible investments.
|Clarifying and strengthening trustees’ investment duties|
I’m including the ministerial foreword from Guy Opperman which is extremely well written and well worth reading. Too often we misunderstand the mood of the people who we are supposed to be working for. On this issue, I think there can be no doubt, it is time we started listening to what people want from their investments and giving it them.
I am very pleased to be publishing the Government’s response to this important consultation on Clarifying and Strengthening Trustees’ Investment Duties. I wish to thank the 89 individuals and organisations who responded to the consultation and the 3432 pension scheme members who offered their views through a questionnaire. Their input has been supportive, challenging, considered and passionate – but always invaluable.
It remains Government policy not to direct the investment decisions or strategies of trustees of pension schemes. We will never exhort or direct private sector schemes to invest in a particular way. Trustees have absolute primacy in this area. I would also like to confirm that it was not our intention to give the impression in our original consultation proposals that trustees must survey pension scheme members or must act on members’ views about how their scheme is invested. Feedback on this point was helpful and we have amended the regulations to make the position clearer.
Nevertheless, in line with the conclusions reached by the Law Commission, I do believe it is possible and appropriate for trustees to take account of members’ views in certain circumstances. I therefore wish to offer clarity to trustees that they can do so; and offer clarity to members of the circumstances in which their view might be considered.
The vast majority of respondents supported the proposed change to regulations to clarify trustees’ duty to consider financially material risks and opportunities – whether those are traditional, such as company performance, interest or exchange rates; or broader such as those resulting from environmental, social and governance considerations including climate change.
A few dissenting voices expressed scepticism about the effectiveness of this measure. But for me the situation is simple – if there is confusion that these issues are to do with personal ethics, or optional extras, or can be dealt with through the addition of a ‘environmentally friendly’ chosen fund, then we need to address that misperception by ensuring that the law is clear. This is about the hard-headed fact that – given the time horizons of pension saving – broader considerations are likely to present long-term financial risks and opportunities to the solvency of DB schemes and the value of members’ DC (and in time Collective DC) pensions.
I was glad to see a widespread consensus that all pension schemes have a role to play in the oversight of firms in which they invest and to whom they lend. We therefore have maintained our proposals on stewardship, and in one area extended them, to put trustees’ responsibilities beyond doubt. I accept that the scope for smaller schemes to make changes will be more limited, but even where the range of actions is as narrow as switching between asset managers or between funds, trustees have a crucial role to play. Choosing a manager who can demonstrate high quality engagement, who partners effectively with co-investors and who votes accordingly where they see poor or questionable practices should improve returns for all.
Similarly, we intend to continue with our proposals to require schemes of 100 or more members with DC sections to produce a report on how they implemented their investment strategy, and to publish it alongside other material. These measures again received broad support.
I recognise that we are working here with private trusts. But private trusts can learn from one another, and transparency can lead to more effective competition and better outcomes for the members to whom trustees have loyalty. It is also right that DC scheme members, who bear the investment risk, and for whom employer contributions are normally conditional on remaining invested in the employer’s chosen scheme, can compare policies and raise issues of concern. Pension schemes and their service providers receive significant contributions through tax relief, and have a key role in corporate governance, as I have explained. So it is right that they have broader public accountability.
Finally, stakeholders confirmed our view that requiring a policy on impact investing at the present time could be confusing and counter-productive. Therefore we will maintain the current position that the preparation of such a policy should be wholly voluntary for pension schemes.
Nevertheless, investing for social, environmental and economic impact remains a subject I am passionate about. I will continue to engage across and beyond Government to identify how we might remove barriers and make it easier to invest in a way that supports the sort of world we want to live in.
Guy Opperman MP Minister for Pensions and Financial Inclusion
AKA – “It’s up to us to get off our rear ends!”
I’ve no idea who these two charlies are – but I enjoyed what they were saying – read the consultation response – but if you can’t be bothered – watch this!